Weekly Market Outlook – The Recovery Effort Didn’t Help Enough

The market tried to bounce back from Tuesday’s horrendous tumble, even inching its way out of the red and back into the black after Friday’s intraday dip. Even with that effort though, it still wasn’t quite enough to get stocks back in the black for the week. Worse than that, Tuesday’s big plunge did some damage that won’t be easy to simply shrug off -- the bears continue to chip away at whatever’s holding the market up here.

And yet, the bulls held the line at the one place where they absolutely had to hold the line. There’s still a path for the market to sidestep the more serious correction that certainly feels overdue at this point.

We’ll look at what’s keeping the market afloat in a moment below. Let’s first look at a handful of economic numbers that traders weren’t quite sure what to do with, and preview the reports that are coming this week.

Economic Data Analysis

The holiday-shortened week meant we had even less economic data than usual to sift three during the third week of the month. However, we did get one noteworthy round of information on Thursday. Personal incomes as well as personal expenditures were both up for November… modestly, and in-line with expectations. Perhaps more important to investors, there was nothing in these numbers that were concerning enough to convince the Federal Reserve to alter it’s plans for three interest rate cuts over the course of this year.

The only other item of any real interest from last week was the third and final look at the University of Michigan’s sentiment measure for January. Although it’s not yet updated on our chart below, it ticked a bit higher for the month, reaching 56.4.

Consumer Confidence Charts

Source: University of Michigan, Conference Board, TradeStation

The Conference Board’s comparable consumer confidence score is due on Tuesday of this week. Forecasts suggest a slight improvement, but like the Michigan number, there’s not enough improvement expected to truly change the continued deterioration in how people feel about the foreseeable future. They’re still mostly unhopeful. Curiously though, this pessimism isn’t yet being reflected by the stock market itself.

Everything else is on the grid below.

Economic Data Report Calendar

Source: Briefing.com, TradeStation

There’s not a lot in the lineup for this week, but we’re getting some whoppers. The biggest of these reports of course is Wednesday’s decision on interest rates. As of the most recent look the market’s saying there’s a 97% chance the FOMC won’t do anything this time around, and probably won’t change the Fed Funds Rate when it has a scheduled opportunity to do so in March. The most likely next time we’ll see a rate cut is the quarter-point cut expected in June, and that’s a “just barely” likelihood.

Those odds just might change after Friday, of course. That’s when we’re going to get December’s producer inflation data, rounding out the consumer inflation report dropped a couple weeks ago.

Consumer, Producer Inflation Rate Charts (Annualized)

Source: Bureau of Labor Statistics, TradeStation

You’re not imagining things here, if you’re seeing stable-to-falling consumer prices yet producer costs that seem to want to edge higher. One or the other is going to need to shift direction soon. Even so, for the time being there’s nothing in the inflation data that decisively says the Fed should or shouldn’t lower interest rates.

Stock Market Index Analysis

Kind of a messed-up week, really. Monday’s day off only gave the bears even more time to line up Tuesday’s selling, which they did. When all was said and done, the S&P 500 ended Tuesday’s session in the red to the tune of 2.0%; that stumble also pulled the index under its 50-day moving average line.

In some regards though, the sheer scope and size of that setback may have been what set up the rebound effort that materialized over the course of the last three days of the week. Take a look at the chart below. The index was back above the 50-day line (purple) by Wednesday, and testing the 20-day moving average line (blue) as a technical ceiling.

S&P 500 Daily Chart, with Volume and VIX

Source: TradeNavigator

It didn’t actually hurdle that ceiling though, nor did it make its way back above what’s becoming an increasingly-proven horizontal ceiling (green, dashed) around 6,920. Moreover, regardless of what happened in the last half of the week, there’s no denying the index fell under the lower boundary of the rising wedge patterns (framed by blue, dashed support and resistance lines) on Tuesday, and never really got in a position to even try and move back above the support floor. The damage is done, even if it doesn’t seem like that big of a deal given the mostly-bullish end to the week.

The NASDAQ Composite’s daily chart looks pretty similar, although not identical. It too appears to be balking at a horizontal technical ceiling around 23,650 (red, dashed), and it’s also below the technical floor that had been steering it higher since November’s low. But, the 100-day moving average line (gray) just under 23,000 was near-perfect technical support on Tuesday, acting as a springboard of sorts on Wednesday… even if it didn’t catapult the index back above some other important technical floors.

NASDAQ Composite Daily Chart, with Volume and VXN

Source: TradeNavigator

Zooming out to the weekly chart of the NASDAQ Composite doesn’t tell us anything new. It does, however, put all of this in the proper perspective. As we can see from this vantage point the composite is actually still moving within the confines of support and resistance lines that go all the way back to 2023. There have been shorter-term floors and ceilings to come and go in the meantime. But, the longer-term well-defined trend is still intact, including the technical floor (yellow, dashed) currently at 22,620. Until that support snaps, the rally is actually still well alive.

NASDAQ Composite Weekly Chart, with MACD and VXN

Source: TradeNavigator

Of course, it’s also now impossible to ignore the fact that the bearish MACD crossunder we saw take shape in November is getting more bearish… even if stocks aren’t actually losing ground. Sometimes you have to pay attention to the subtle clues like these more than the overt ones.

Bottom line? The market’s (still) basically on hold here, with both sides of the fence just waiting for the people on the other side of it to make a true commitment. You’re better off waiting for clarity than guessing, as the odds of a rally/breakdown from here are 50/50.

The good news is, the technical floors and ceiling remain very well defined. It shouldn’t be difficult to see once the market’s finally out of this rut. Just follow that lead once it develops. If that lead is a bearish one, hopefully the VXN and VIX will play along and give us a clear confirmation in the form of a thrust above their recent peaks … just not too high.